Title: A theory of directional pricing and its application to electricity policy

Authors: Akira Maeda; Makiko Nagaya

Addresses: College of Arts and Sciences, The University of Tokyo, 3-8-1 Komaba, Meguro, Tokyo 153-8902, Japan ' Graduate School of Economics, Kyoto University, Yoshida-honmachi, Sakyo, Kyoto 606-8501, Japan

Abstract: This study is a first attempt of investigating a theory of directional pricing. Directional pricing is defined as price or rate designs that apply different prices to selling and buying the concerned goods. A typical example would be rate schedules in the feed-in-tariff (FIT) policy for electricity. This study discusses how the pricing is distinctive and shows that a new development of the theory is essential for the analysis of such emerging electricity markets.

Keywords: directional pricing; feed-in tariff; FIT; rate design; real options; digital options; binary options; electricity prices; electricity markets.

DOI: 10.1504/IJEBR.2014.057952

International Journal of Economics and Business Research, 2014 Vol.7 No.1, pp.1 - 16

Published online: 07 Jun 2014 *

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